Monday, September 25, 2023

Poland’s Success

Harold James
November 11, 2021 | 3:08 am
Polish Prime Minister Mateusz Morawiecki visits the production plant of railway company PESA in the district of Bydgoszcz, August 19, 2021.  (
Polish Prime Minister Mateusz Morawiecki visits the production plant of railway company PESA in the district of Bydgoszcz, August 19, 2021. (

The collapse of Soviet communism was a process that began in Poland, with the Solidarnosc movement eventually overcoming an oppressive and inhumane order. A powerful motivation in that drive was the desire to reconnect with international institutions and with Europe. 

Poland’s economic transformation since then has been a dramatic success, with continued growth. Indeed, Poland was the only European Union member where income growth continued through the 2008 financial crisis; more recently, it is the country least economically damaged by Covid. 

Statistics about living standards are of course subject to all sorts of interpretation and distortion, though they give testimony to the stunning convergence with western Europe. The simplest and most intuitively appealing measurement is of how long people live. 

In 1990, life expectancy in Ukraine and Poland was almost identical (70.1 and 70.9 years respectively); by contrast, the latest (2019) figures are 71.8 and 77.9. Poles now can live longer and better lives.


This outcome is not a result of some fortuitous development, but rather reflects the quality of institutions and the signals and incentives. 

Today, a consensus of economists and political scientists identifies institutions as the key shapers of development. But good institutions cannot be created immediately: they require careful debate and sustained attention to institutional design. Creating a viable and dynamic legal and economic order also depends crucially on learning from others.

In the conventional view of transformation, all attention focuses on the great drama of liberation in 1989, the charisma of John Paul II, the Polish Pope, and the bold visions of participants in the Round Table. 

But the business of institutional design took much longer: it was substantially accomplished only at the end of the 1990s, and then the move set the framework for the continuance of an economic miracle. 

The institutional development reflected a new view of what was international best practice. During the 1980s a substantial academic literature developed concerning inflation performance as well as macroeconomic stability and growth. 

The new consensus suggested that in industrial countries, but also more generally, central bank independence (CBI) was closely correlated not only with lower rates of inflation but also with better economic performance. 

It was already well known that monetary authorities were frequently subject to political pressures that produced higher levels of monetary growth, but that such dependence had not improved long-run growth rates.  

The literature initially developed on the basis of an appreciation that establishing firm commitment mechanisms was an essential element in the establishment of policy credibility. 

This approach emphasized the contractual element of the position of central banks, and consequently focused on the explicitly defined terms of contracts or laws establishing central banks. 

A new ordering of the central bank in Poland was part of a general constitutional reworking, and of the new constitution of 1997. 

This move is only intelligible as part of a sustained move to institutional rapprochement with Europe and the European ideal: through NATO and then EU membership. An independent central bank and a fiscal rule were part of the convergence process. 

The fiscal goal set out in Article 216/5 reproduced the 60 percent limit of the Maastricht Treaty and the EU’s Stability and Growth Pact: “It shall be neither permissible to contract loans nor provide guarantees and financial sureties which would engender a national public debt exceeding three-fifths of the value of the annual gross domestic product.” 

The provisions for the central bank (Article 227) looked like a repeat of the Bundesbank law, with its emphasis on “securing” the value of the currency, or price stability: “The National Bank of Poland shall be responsible for the value of Polish currency.”

This move, and the details as set out in the Bank Law of 1997, corresponded to moves in other countries, across the world. 

Stage 2 of the process of the European Monetary Union, as provided in the Maastricht Treaty, required the move to central bank independence; and the new and uniquely independent European Central Bank began its existence in 1999. 

In Poland, the move was a success: inflation fell to below 2 percent in 2002 and for years provided a basis for making the business decisions that built an entrepreneurial and successful economy.

Harold James is a historian at Princeton University. The views expressed in this article are those of the author.

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